The Federal Reserve System and the New York State Banking Department have ordered Daiwa Bank Ltd. to curtail its trading activities because of the bank's failure to promptly report a $1.1 billion trading loss.

In a joint release Monday, the two supervisory agencies set deadlines for a reduction in activity and ordered Daiwa bank to conduct a comprehensive audit of its activities through a third party within 10 days. The order requires Daiwa and its New York branch to submit a plan within 30 days of the audit to correct any deficiencies.

Both agencies leveled sharp criticism against the Japanese bank, which accumulated the losses over an 11-year period as a result of unauthorized trading operations. The losses, disclosed last week, were allegedly concealed from the bank by Toshihide Iguchi, a senior trader who was also responsible for back-office record keeping.

The joint order noted that the same person at Daiwa had continued to control both trading and custodial activities even after that practice was criticized by regulators in November 1992 and November 1993.

The two agencies also raised the possibility of further action against Daiwa, noting that the bank had failed to comply with regulatory procedures in reporting the loss.

"Notwithstanding the fact that this information was material to the veracity of the New York branch's books and records and the ability of the reserve bank and the superintendent to supervise adequately the New York branch, Daiwa and the New York branch failed to provide the regulators with timely and adequate notice of this matter," the order stated.

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